January 15, 2019
In a rare, but limited, win for employees on the issue of arbitration of employment disputes, a unanimous Supreme Court today ruled in New Prime Inc. v. Oliveira that trucking company New Prime Inc. cannot compel arbitration under the Federal Arbitration Act (FAA) in a class action alleging failure to pay minimum wages to independent contractor truck-driver apprentices, saying Congress meant to exempt all transportation workers from the Federal Arbitration Act.
The Federal Arbitration Act requires courts to enforce private arbitration agreements, which is the rule that generally applies to employment contracts containing arbitration provisions. However, FAA section 1 provides a qualification that “nothing herein” may be used to compel arbitration in disputes involving the “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Writing for the Court, Justice Neil Gorsuch found that at the time of the provision’s enactment in 1925, “contracts of employment” would have included not only the traditional master-servant employment relationship, but also independent contractor-relationships: “When Congress enacted the Arbitration Act in 1925, the term ‘contracts of employment’ referred to agreements to perform work. No less than those who came before him, [the independent contractor trucker] is entitled to the benefit of that same understanding today. Accordingly, his agreement with New Prime falls within [Section] 1’s exception, the court of appeals was correct that it lacked authority under the act to order arbitration, and the judgment is affirmed.” The decision clears the way for the wage and hour case to proceed against New Prime in federal court.
While the decision, which is the latest of a running line of Supreme Court cases on arbitration of employment disputes, is of limited importance because it is restricted to an exception applicable only to workers engaged in foreign or interstate transportation, the case highlights again the importance of arbitration provisions in employment contracts, handbooks and policies. Employers and employees should carefully consider, with knowledgeable counsel, such provisions when entering into employment, as well as independent contractor, relationships.
This article is intended only as a general discussion of these issues. It is not considered to be legal advice or relied upon. If you need assistance with a particular IP, commercial, appellate or employment issues, including arbitration issues in the context of employment or independent contractor relationships, Larry Brocchini would be pleased to consider providing additional details or advice about specific situations.